First there is the promoted, positive, altruistic assumption of economic certainty, and then there is the arbitrage of the actual underlying reality; the assumption, and then the indefensible proof otherwise.
An externality can never leave an equation, even if a public relations promotion of simplification, annexation and omission is applied. The key to understanding this can be described by applying thermodynamics to such values. Values for which even Maslow would blush.
The Dominican Republic of the 1970's is a fair example of what I wish to describe - as much as to say there have been many other countries before or since - right upto and including the present day. Below is an extract from the book The Washington Connection, published in 1979. The main author of this particular piece is Edward S. Herman, American economist, media analyst with a speciality in corporate and regulatory issues, as well as political economy and the media. He is Professor Emeritus of Finance at the Wharton School of the University of Pennsylvania:
The Dominican Republic: U.S Model for Third World Development
In his Stages of Economic Growth, Walt W. Rostow describes a development process for Third World countries that come into our orbit: they become gradually like us, with advanced industrial technologies and democratic institutions. The Dominican Republic offers an earthy illustration of the reality of development processes under U.S. auspices. It is an especially apt and relevant case for this reason: with and after the invasion of 1965 the U.S. reasserted effective control over that small country and has thoroughly dominated its politics and economics. Given the absence of any threatening counter forces, we can say that in the Dominican Republic the flow of events surely must have been in conformity with the desires of the U.S. foreign policy leadership.
It will be recalled that the U.S. invaded the Dominican Republic in 1965 to prevent the displacement of the relatively benign fascist regime of Donald Reid Cabral by the Constitutionalist regime of Juan Bosch, who had been overthrown by a military coup in 1963-without eliciting any U.S. intervention to save him and his brief experiment in democratic government. The rationalization by Lyndon Johnson and his spokesmen, alleging an imminent threat of Communism, were convincingly shown by Theodore Draper and others to have been a hypocritical cover for a positive preference for fascism over a less reliable and less controllable democratic reformist government. The invasion of 1965 reestablished a firm U.S. grip on the island. As Bosch put it in June, 1975, "This country is not pro-American, it is United States property." What then have been the main characteristics of the Dominican model of Third World development, as seen in a country under close U.S. surveillance and control?
The first characteristic has been extensive and systematic terror. In the Dominican Republic, Guatemala, and Brazil, three client fascist systems that came into being with explicit U.S. connivance, by a strange coincidence pare-military "death squads" quickly made their appearance and went on a rampage against political dissenters, petty criminals, and sometimes purely arbitrary victims. Amnesty International called special attention to "the numerous political assassinations carried out by Death Squads (such as the notorious La Banda) that have been openly tolerated and supported by the National Police. In 1970 it was alleged that there was one death or 'disappearance' every 34 hours. In July, 1971, Norman Gall alleged that in the post-1965 era, the number of political murders in the Dominican Republic exceeded that of any comparable period under the monstrous Trujillo. Gall noted further that
The Santo Domingo newspaper El Nacional last December. 30 filled a page and a half of newsprint with the details of 186 political murders and thirty disappearances during 1970. The Dominican terror resembles the current wave of political killings in Guatemala…in that the paramilitary death squads are organized by the armed forces and police, which in both cases over the years have been given heavy U.S. material and advisory support.
Gall went on to note that the essential function of political terror in the Dominican Republic has been to control the slum population, "which was the main force that defeated the Dominican military in the 1965 revolution." The Wall Street Journal reported on September 9, 1971 that "the conservative Catholic Church hierarchy has condemned the 'institutionalization' of terror." The Journal also claimed that the opinion was widespread in the Dominican Republic that the United States was behind the paramilitary death squads. Whether or not this specific allegation was true, the Journal observed that "the embassy has done nothing publicly to dissociate itself from the terror. The U.S. continues to provide substantial aid, training, equipment, and arms, to the Dominican police and army."
Since 1971 the rate of killing has slackened, but political assassinations continue and the incarceration and torture of political prisoners still plays a key role in maintaining stability. Amnesty International recently stated that "precise, detailed and consistent information…indicates that practices amounting to serious violations of human rights are still going on: the arbitrary arrest, kidnapping, and assassination of the regime's political opponents; the removal of certain political prisoners to isolation in provincial jails and military forts; deplorable prison conditions, ill-treatment and police brutality inflicted on many detainees…and the continued detention of prisoners once their sentences expire.
The U.S. State Department, on the other hand, in its 1978 Human Rights Report to Congress, finds a "substantial reduction in incidents of military and police repression," a working "constitutional democracy," and "over a dozen political parties…officially recognized and freely active although the 1974 elections were marred by some incidents of military intervention on behalf of the President's reelection." On this last point, the Washington Office of Latin America notes that "the State Department demolishes its own argument. Official recognition means little and political parties are not really free if the military acts against them during an election. Harassment of opposition forces has not ceased, despite Balaguer's claim to have ordered the military to remain neutral. In the fall of 1977, as pre-election campaigning for 1978 was beginning, a local headquarters of the social democratic opposition party PRD was burned to the ground and a PRD official, Samuelo Santan Melo, was murdered. Subsequently, of course, the military intervened more comprehensively to avert Balaguer's defeat in May, 1978, seizing the ballot boxes and arresting or driving underground many leaders of the PRD, before pressure from both the Dominican elite and the Carter administration eventually forced the military and Balaguer to allow a transfer of the presidency to Guzman. A wealthy landowner himself, Guzman would not have been running at all, and would not have been allowed to take office, if he had posed a threat of serious reform. The military and its external sponsor assure that the new PRD operates within a very narrow boundary of policy actions. ~ 56 All the more reason then for the State Department to be pleased with the progress of the Dominican Republic, to be reassured by the promises of its leaders, and to find that this client state deserves the funds still allocated to it for military assistance.
A second characteristic of the Dominican Republic model is widespread venality. Alan Riding wrote in 1975 that "the blatant corruption of military and civilian sectors of the government is spreading bitterness among the urban masses, whose wages have been held down despite high inflation rates since 1960. The military and police in this client state are numerous and well taken care of. According to Riding, one method whereby Balaguer retained control was "by openly allowing senior officials to enrich themselves. With official salaries of $700 a month, for example, most of the country's 37 generals live in huge modern houses, drive limousines, and own cattle ranches."
More recently, Jon Nordheimer wrote that
"Corruption among the generals is almost as legendary as is their ineptitude. In the first place there are about twice as many generals-around 40-as there should be for the size of the military forces. Generals are promoted on the basis of family, friendship and business connections…It is common knowledge that Lieut. Gen. Juan Beauchamps Javier, Secretary of State for the Armed Forces, owns a $300,000 yacht in partnership with a Dominican businessman and that Maj. Gen. Neit Nivar Siejas, the commander of the national police, is part owner of a major Santo Domingo hotel and gambling casino."
A recent report to the Securities and Exchange Commission by Philip Morris showed: (1) a $16,000 payment to a Dominican tax official for a favorable tax ruling; (2) the payment of $ 120,000 to various Dominican legislators for passage of a law that would give Philip Morris a privileged position in the Virginia tobacco line; and (3) monthly payments of $ I ,000 by Philip Morris to Juan Balaguer himself. The president of a presumably independent state taking payoffs from a private foreign business firm would seem rather sensational, but this passed off virtually unnoticed in the United States. Gulf & Western made $ 146,000 in "questionable" payments through foreign subsidiaries in 1976, and although the distribution of those payments was not revealed by the SEC, the usefulness of such a lubricant in the Dominican Republic and G & W's large place there rouses plausible suspicions.
U.S. firms get business done in the Dominican Republic not only by payoffs but by putting important people on their payrolls and by building both personal and financial ties to the local elite. Thus in the mid-1970s the brother of the important Director of Tourism was a vice president of G & W's sugar-producing subsidiary in the Dominican Republic. G & W is also reported to have established "cordial relations" with General of the Police Tadeo Guerrero, who was active in the destruction of the last strong independent union in the sugar business.
Gulf & Western is the largest private landowner and employer in the country, with some 8% of all arable land, mainly in sugar, owner of a large resort complex, and with investments in some 90 Dominican businesses. G & W's annual sales are larger than the GNP of the Dominican Republic, and while it does not by itself control the country, its size, internal connections, and the background support of the external sponsor of Dominican subfascism, give the company a great deal of leverage and might even justify the designation of the Dominican Republic as a "company country. Its rapid expansion within the Dominican Republic since 1967 has been a result, in part, of the great profitability of its sugar operations and an 18% ceiling on profit repatriation.
A potential competitor to Gulf & Western's large seaside resort at La Romana, M. Wayne Fuller, ran into a steady series of obstacles in the early 1970s from the Tourism Office in importing supplies and obtaining tax concessions supposedly available to foreign enterprises. In April, 1975, a government decree was signed expropriating Fuller's beach-land property-for use as a public park-helped along possibly by the fact that the president of another G & W subsidiary was an advisor to the Dominican Republic Park Commission. This decree was rescinded when Fuller mobilized his forces, including various army officers and Balaguer himself. In brief, foreign interests are exceedingly powerful as they curry and buy favor and mobilize their elite cadres, with whom they jointly dominate and loot this small dependency.
A third characteristic of the Dominican model has been a radical sweetening of conditions for foreign business and a strong reliance on foreign investment for national development. As in Greece under the Colonels' regime of 1967-1973, great stress has been placed on tourism and investments related to tourism (resort hotels, airport development). An Investment Incentives Law of 1968 removed any restrictions on foreign ownership, extended generous tax and duty exemptions to new investments, and guaranteed capital and profit repatriation. U.S. companies have swarmed into agriculture, food processing, mining, banking and hotel and resort complexes. In 1969 G & W became manager of a large tax-free zone adjacent to G & W's Cajuiles golf course. One of the many Dominican Republic ads in the New York Times- funded in good part by "contributions" from foreign companies in the country-notes that companies settling within the G & W free zone "are given special duty free import and export privileges. They are granted a 10-year tax-free status." The reporter Michael
Flannery describes the G & W "free zone" in the following language:
"Shotgun-toting customs agents and national police man check points at entrances to the free zone, which is surrounded by a high chain-link fence topped with multiple strands of barbed wire…CNTD [National Confederation of Dominican Workers] and visiting officials of the AFL-CIO charged that the zone had the air of a "modern slave-labor camp." They said the carefully controlled access was designed not only to prevent smuggling, but to thwart efforts to organize the workers into unions that would force an improvement in conditions."
A fourth characteristic of the Dominican Republic model, related to the preceding, is effective government pacification of the labor force, a crucial requirement for an appropriate "climate of investment." As noted above, the systematic police terror since 1965 has returned the large urban proletariat and sub-proletariat to the desired state of passivity, and the countryside has been more easily kept in line by periodic violence and threats. The Dominican Republic advertisement section in the New York Times of January 28, 1973, has a heading entitled "Industrialists Dream of Chances Like These," featuring the low, low wage rates, running between 25 and 50 cents an hour. The ad stresses the role of the law in fixing hours and wages and allowing the free import of foreign technicians. There is no mention of any trade unions, but employers will properly read between the lines that unions have been broken and pacified (with the assistance of George Meany and the AFL-CIO). Of special interest is the regular use of government troops and police to break up independent unions. The agricultural union Sindicato Unido, which operated the fields now owned by G & W was broken by police action in 1966 and 1967, and a number of its leaders, including the union lawyer Guido Gil were arrested and killed by the forces of law and order. Another major foreign enterprise, Falconbridge Nickel, also successfully broke a union with army and police assistance in 1970. A Wall Street Journal report of September 9, 1971 states that "when a union attempted to organize construction workers at a foreign-owned ferronickel mill project last year, Mr. Balaguer sent in the army to help straighten things out. While the soldiers kept order, the contractors fired 32 allegedly leftist leaders…The strike was broken in eight days." Matters had not changed much in the mid-70s. An ad hoc human rights group that visited the Dominican Republic in 1975 reported that "working people have been prevented by nearly every conceivable means from forming and joining trade union organizations." A union organizing effort in the G & W free trade zone in the mid-1970s was broken with the help of the police in arresting, jailing, and deporting labor organizers, and with the use of "troops in full combat gear armed with submachine guns" to break up organizing meetings. Flannery states that:
"Officials of the Dominican labor ministry told organizers that-contrary to the paper guarantees of the republic's laws-workers would not be allowed to form a union in the industrial free zone."
On the matter of labor unions, the 1977 State Department Human Rights Report has the following "information": "Labor unions are permitted to function and numerous labor unions exist including some associated with opposition parties, but under some government controls." That exhausts that topic.
In containing unions and rendering them docile the Dominican elite has had the steadfast support of the top echelons of the AFL-CIO, which has long cooperated closely with the CIA and international business firms in this unsavory operation. Its arm CONATRAL actually helped destroy the pro-labor Bosch regime in 1963 and has steadily supported its totalitarian and anti-labor successors."' Presumably their blind hatred of Communism and radicalism in general has led Meany and his close followers to sell out systematically the interests of labor in the Dominican Republic and in other U. S. satellites. Meany and some other labor bosses actually have a more direct interest in the pacification of labor in the Dominican Republic. Meany, his number two man Lane Kirkland, Alexander Barkan, director of COPE, the AFL-CIO political arm, and Edward J. Carlough, president of the sheet metal workers, all are stockholders in the 15,000 acre Punta Cana resort and plantation in the Dominican Republic. In order to clear the ground for this enterprise designed for the Beautiful People a large numbers of squatters were evicted by the army.
A fifth characteristic of the Dominican model, following naturally from the preceding, is the sharp deterioration in the well-being of the bulk of the population. In serving the interests of a traditional and expatriate elite, the Dominican Republic has been turned into a tourist and industrial paradise, with a "25-cent minimum wage rate and hard-working peaceful labor" [sic: translated, no threat of strikes from any independent unions], and with four tax free zones "filled with manufacturers of brushes, brassieres, batteries, electronic devices, wigs, undergarments, components and consumer goods." The effects of the 1965 counterrevolution and the installation of the Dominican Republic model on income distribution and welfare were summarized by the Wall Street Journal (9 September 1971) as follows:
"The middle and upper classes are better off, as are the lower classes lucky enough to have jobs. But work is scarce; the poor are poorer and more numerous. "Per capita income is about the same as before 1965, but it's less equitably distributed," a foreign economic expert says. He estimates per capita income at $240-three times that of Haiti but half that of Cuba… Most of the 370 young women who work at La Romana earn 30 cents to 40 cents hour last year…Malnutrition is widespread. Says George B. Mathues, director of CARE in the Dominican Republic: "You see kids with swollen bellies all over the country, even here in Santo Domingo." Food production is hampered by semi-feudal land tenure. At last count, less than 1% of the farmers owned 47.5 % of the land, while 82% farmed fewer than 10 acres… Land reform has moved with glacial speed…Most Dominican children don't go beyond the third grade; only one in five reaches the sixth grade. "
G & W acknowledged in 1978 that cane cutter money wages had not kept up with inflation in the years since 1966,'75 and there is other evidence to the same effect, which suggests a probable further absolute fall in the real income of the majority and a further shift toward inequality in income shares. There is also evidence that the nutritional deficit of the Dominican majority is huge. Michael Flannery cites a report which states that in 1972 "a mere 11 percent of Dominicans drink milk, 4 percent eat meat and 2 percent eat eggs. Fish are plentiful in the waters off the island, but draw better prices in other markets. So, few Dominicans include fish in their protein-poor diet."
In the Dominican Republic we see the working out once again of the familiar repression-exploitation-trickle-down model of economic growth. The export-oriented agriculture is, as is common throughout the empire, displacing an already underemployed peasantry and rural work force, increasing the mass of dispossessed and malnourished. The unemployment rate has been extraordinarily high, on the order of 30%-40%.'79 The mass of the population has been entirely excluded from any opportunities for economic advancement, education, or political participation. The large majority as in Brazil, Indonesia, or the Philippines, is a cost to be minimized and a threat to be contained. The process of development observed here is acceptable on the assumption implicit throughout the empire-that only the welfare of the local and expatriate elites need be taken into account. The decline in the welfare of the majority, their exclusion from any power whatsoever, and the cultural degradation of the Dominican Republic, are obviously beside the point. "Stability" has been brought to the country, and from the perspective of U.S. investment opportunities, the Dominican Republic deserves the glowing description of a U.S. Embassy report describing it as a "little Brazil" and "one of the brightest spots in Latin America."
All of these corporations were able to work enough within the regulatory bounds to avoid detection before it was simply too late. Were it not for the bail-outs, the whole system would have imploded. (Is that too much dramatic hyperbole?)